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Inception-expansion-bursting bubbles in the BRICS-dollar exchange rates

Author

Listed:
  • Geraldo E. Silva jr.

    (Department of Economics, Federal University of São Carlos)

  • Sidney M. Caetano

    (Department of Economics, Federal University of Juiz de Fora)

Abstract

The new economic and geopolitical landscape of the BRICS bloc has stirred the interest of politicians and policymakers in exploring potential changes in exchange rate policy, including the prospect of a new currency. Assuming the exchange rate as a fundamentals-based stock price, we employed the SADF and GSADF tests to verify nominal exchange rate explosivity, and demonstrate how explosiveness can be detected in the ratio of the exchange rate relative to the random walk fundamentals and Purchasing Power Parity (PPP) fundamentals. The results revealed positive and enduring positive bubbles for Brazil, minor bubbles for South Africa, and prolonged negative bubbles for China across various exchange rate policy scenarios. We conclude that the diverse array of scenarios presented numerous options for bubble currencies, and the possibility of a new BRICS exchange rate common policy or a new currency could accommodate these variations.

Suggested Citation

  • Geraldo E. Silva jr. & Sidney M. Caetano, 2024. "Inception-expansion-bursting bubbles in the BRICS-dollar exchange rates," Economics Bulletin, AccessEcon, vol. 44(3), pages 961-974.
    • Handle: RePEc:ebl:ecbull:eb-24-00067
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    More about this item

    Keywords

    Macroeconomic Issues of Monetary Unions; International Financial Markets; Expectations and Speculations; Bubbles;
    All these keywords.

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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